1997 World Grain Review

November 01, 1997
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by Teresa Acklin

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(Refer to magazine for Wheat, Maize Soybean prices.)

Wheat stocks in 1996-97 rebounded from perilously low levels at the end of 1995-96, thanks to near-record global production, including record harvests in three of the world's five major exporting countries. The increased wheat availability contributed to a 17% drop in prices during the season, while worldwide consumption jumped by 5% to nearly 580 million tonnes, a record high. The production gains outpaced the increase in use, permitting a slight rebuilding of stocks, although the stocks-to-use ratio remained near historically low levels.

Global maize production reached a record in 1996-97, helping to alleviate concerns following the lowest stocks carry-in level in more than 20 years. World maize prices during the season tumbled by 15%, which encouraged an increase in use to a record 571 million tonnes. The season saw a small rebuilding of stocks, but, as with wheat, the maize ending stocks ratio remained historically tight.

World production and use of soybeans both set records in 1996-97, but unlike the situation with wheat and maize, increases in soybean use outstripped production increases for the second straight marketing year. The result was a further drop in carry-over stocks as 1997-98 began, to less than 10% of use. World soybean prices during 1996-97 worked higher, with the season average import price exceeding U.S.$300 a tonne for the first time since 1988-89.

As of press time, global use of wheat, maize and soybeans in 1997-98 was projected to set records, while production of wheat and soybeans also was expected at record highs.

Wheat, wheat flour

(1,000 tonnes)

1  United States

Total: 33,594

Destinations:

Egypt

4,854

Japan

3,087

China

2,714

Philippines

1,799

Pakistan

1,661

Other

19,479

2  CANADA

Total: 16,850

Destinations:

China

5,657

Japan

1,463

Algeria

1,130

E.U.

1,076

Brazil

1,048

Other

6,476

3  EUROPEAN UNION

Total: 12,500

Exports by destinations not available at press time.

4  AUSTRALIA

Total: 12,029

Destinations:

China

2,236

Indonesia

1,676

Iran

1,592

Japan

1,145

Egypt

742

Other

4,638

5  ARGENTINA

Total: 4,907

Destinations:

Brazil

3,740

E.U.

505

Otherr

662

TOP IMPORTERS

(all sources)

China

12,100

Japan

6,101

Egypt

6,000

Brazil

5,600

Russia

4,200

Flour

(1,000 tonnes)

1  EUROPEAN UNION

Total: 4,589

Destinations:

Algeria

859

Libya

565

Sudan

325

Angola

174

Yemen

141

Other

2,525

2  TURKEY

Total: 871

Destinations:

Iraq

410

Algeria

92

Georgia

89

Libya

58

Azerbaijan

45

Other

177

3  UNITED STATES

Total: 790

Destinations:

Yemen

141

Haiti

124

Bosnia

106

Georgia

57

Egypt

41

Other

321

4  JAPAN

Total: 559

Destinations:

Hong Kong

290

Egypt

130

Vietnam

51

Singapore

43

Thailand

33

Other

12

5  HUNGARY

Total: 338

(July-December 1995 only)

Destinations:

Russia

152

Belarus

69

Slovakia

50

Yugoslavia

33

Bosnia

24

Other

10

TOP IMPORTERS

(all sources)

Algeria

1,044

Yemen

859

Libya

667

Russia

530

Iraq

417

Sudan

328

Soybeans

(1,000 tonnes)

Calendar 1996

1  UNITED STATES

Total: 25,566

Destinations:

European Union

8,315

Japan

3,770

Mexico

2,648

Taiwan

2,614

Korea

1,536

Other

6,683

2  BRAZIL

Total: 3,600

Destinations:

E.U

2,961

Japan

358

Korea

109

Other

172

3  ARGENTINA

Total: 2,094

Destinations:

E.U

1,634

China

213

Other

247

TOP IMPORTERS

(all sources, 1995-96 marketing year)

E.U

14,240

Japan

4,780

Taiwan

2,650

Mexico

2,400

Barley

(1,000 tonnes)

1  AUSTRALIA

Total: 3,375

Destinations:

China

912

Saudi Arabia

635

Japan

550

Brazil

230

Taiwan

132

Other

916

2  E.U.

Total: 2,850

Exports by destinations not available at press time.

3  CANADA

Total: 2,603

Destinations:

United States

796

Japan

479

China

449

Saudi Arabia

398

Colombia

147

Other

334

4  UNITED STATES

Total: 1,181

Destinations:

Saudi Arabia

373

Japan

278

Mexico

260

Other

270

5  SYRIA

Total: 551

Destinations:

Jordan

404

Other

147

Barley

(1,000 tonnes)

1  AUSTRALIA

Total: 3,375

Destinations:

China

912

Saudi Arabia

635

Japan

550

Brazil

230

Taiwan

132

Other

916

2  E.U.

Total: 2,850

Exports by destinations not available at press time.

3  CANADA

Total: 2,603

Destinations:

United States

796

Japan

479

China

449

Saudi Arabia

398

Colombia

147

Other

334

4  UNITED STATES

Total: 1,181

Destinations:

Saudi Arabia

373

Japan

278

Mexico

260

Other

270

5  SYRIA

Total: 551

Destinations:

Jordan

404

Other

147

TOP IMPORTERS

(all sources)

Saudi Arabia

2,900

Japan

1,529

China

1,413

United States

810

Russia

800

Sorghum

(1,000 tonnes)

1  UNITED STATES

Total: 4,757

Destinations:

Mexico

1,633

Japan

1,616

European Union

899

Israel

357

Other

252

2  ARGENTINA

Total: 811

Destinations:

Japan

349

Mexico

131

Other

331

3 AUSTRALIA

Total: 594

Destinations:

Japan

484

Other

110

TOP IMPORTERS

(all sources)

Japan

2,298

Mexico

1,765

Maize

(1,000 tonnes)

1  UNITED STATES

Total: 52,681

Destinations:

Japan

14,900

South Korea

7,333

Mexico

6,268

Taiwan

5,600

European Union

2,351

Other

16,229

2  ARGENTINA

Total: 6,949

Destinations:

Iran

1,007

South Korea

665

European Union

579

Malaysia

561

Venezuela

519

Other

3,618

3  SOUTH AFRICA

Total: 1,640

Destinations:

Japan

449

Malaysia

212

Venezuela

207

Other

772

TOP IMPORTERS

(all sources)

Japan

15,976

South Korea

8,963

Mexico

6,379

Taiwan

5,727

European Union

2,925

RIce

(1,000 tonnes)

calendar year 1996

1  THAILAND

Total: 5,280

Destinations:

China

632

Malaysia

470

Indonesia

469

Iran

368

Nigeria

340

Other

3,001

2  INDIA

Total: 3,556

Destinations:

Bangladesh

614

Saudi Arabia

449

South Africa

321

Indonesia

267

Russia

248

Other

1,657

3  VIETNAM

Total: 3,100

Exports by destinations not available at press time.

4  UNITED STATES

Total: 2,624

Destinations:

Mexico

301

Japan

213

Turkey

209

Canada

165

Haiti

163

Other

1,573

5  PAKISTAN

Total: 1,663

Destinations:

Western Africa

373

United Arab Emirates

226

Saudi Arabia

106

Iran

102

Other

856

TOP IMPORTERS

(all sources)

Iran

1,350

Indonesia

1,233

Philippines

900

China

850

Brazil

800

E.U.

800

Major grain exporting and importing ports

(Exports of grain in tonnes, 1996 unless otherwise noted)

Exporting ports

Prince Rupert, Canada

3,410,000

Vancouver, Canada

12,249,000

Thunder Bay, Canada

7,663,645

Duluth, Minnesota, U.S.

4,399,585

* Puget Sound, Washington, U.S.

7,743,000

* Portland, Oregon, U.S.

17,995,000

Houston, Texas, U.S.

10,192,000

* South Louisiana, U.S.

63,502,000

Corpus Christi, Texas, U.S.

982,000

Paranagua, Brazil

8,867,000

Santos, Brazil

1,490,000

Sao Francisco do Sul, Brazil

1,558,000

Rio Grande, Brazil

3,091,000

Rosario, Argentina

5,196,303

Necochea, Argentina

2,601,295

Buenos Aires, Argentina

539,556

Bahia Blanca, Argentina

2,227,296

* San Martin/San Lorenzo, Argentina

4,123,871

Immingham, U.K.

812,600

Tilbury, U.K.

561,877

Southampton, U.K.

878,100

Nantes, France

504,000

1 Rouen, France

4,900,000

+ Amsterdam, Netherlands

946,000

+ Rotterdam, Netherlands

2,528,000

* River Weser, Germany

1,300,000

+ Ghent, Belgium

361,168

1 Kwinana, Australia

4,160,153

1 Albany, Australia

1,813,933

1 Adelaide, Australia

732,810

1 Geelong, Australia

1,793,807

1 Esperance, Australia

792,826

1 Port Lincoln, Australia

1,083,176

1 Geraldton, Australia

1,791,325

Brazil data are February 1996-January 1997, soybeans and products only.

*Denotes port area, including grain facilities in the vicinity of the named port city.

+Agribulk total, including grain, oilseeds and fats and animal feedstuffs

1 1995-96

2 Wheat only

Importing ports

(Imports of grain in tonnes, 1996 unless otherwise noted)

Tilbury, U.K.

541,500

Ghent, Belgium

2,904,527

+ Rotterdam, Netherlands

10,674,000

+ Amsterdam, Netherlands

7,654,000

Pusan, South Korea

1,661,000

Ulsan, South Korea

1,800,000

Inchon, South Korea

10,544,000

Dalian, China

993,253

Tianjin, China

1,456,719

Shanghai, China

1,004,224

Nanjing, China

1,132,803

Jiulong, China

1,252,592

Zhanjiang, China

681,828

Huangpu, China

1,106,718

2 Kobe, Japan

786,349

2 Nagoya, Japan

626,495

2 Yokohama, Japan

861,729

2 Osaka, Japan

403,610

2 Hakata, Japan

561,259

2 Chiba, Japan

926,847

* River Weser, Germany

1,800,000

Ningbo, China

815,262

+ Nantes, France

2,260,000

Note: Data for China are reported by customs district.

* Denotes port area, including grain facilities in the vicinity of the named port city.

In his recent speech on the wonders the new macro-economic strategy would work on the nation's agricultural base, Mexico's President Ernesto Zedillo read out a long list of objectives that must be met to pull the sector into modern times.

As he and other agricultural authorities pledged to reduce record grain imports, eliminate deficits in production of staples such as milk and bring the cost of rural financing into the realm of possibility, one thing became painfully clear. The rest of Mexico may be on the fast track to modernization, but the agricultural sector has definitely been left, as it were, in the dust. Underfunded and technologically outstripped by its partners in the North American Free Trade Agreement, the sector must overhaul its processes, from cultivation to pricing and commercialization.

As key grain warehouses are being privatized this year, commercialization will get a shot of modernization. Remaining pieces of the puzzle, however, include the age-old problem of inefficiency of pricing.

Producers seeking real-time knowledge of prices have long clamored for a local commodities exchange or bolsa agropecuaria. While proponents say they are getting closer, there is still more than one roadblock facing a truly functional commodities exchange.

The need for the price setting mechanism is not in dispute. Victor Celaya del Toro, director of Economic Studies at the National Agriculture Council, calls the project “absolutely necessary.” Currently, says Mr. Celaya, the dearth of information is frightening. “Ask 100 producers what the going price is, and 90 won't know,” he says.

The primary advantage of having such an exchange is it would give the nation's 3.3 million grain producers real-time information on prices. Given the lack of a bolsa, the government has adopted the strategy of indexing commodity prices to their trading price on U.S markets. The price for Mexican grain in Gunajauato, for example, is determined by taking the cost of U.S. grain in Guanajuato less the storage and financing costs involved in importing.

Although this is far from the most efficient way of pricing a commodity, the creation of an open pricing mechanism has been hindered to date by a traditional dependence on the government to set prices. The government ceased to officially set prices on most grains four years ago, but a non-official reference price still exists in the form of the General Supply Company (Compania Nacional de Subsistencias Populares), better known as Conasupo. The scandal-ridden organization that buys grains at heavily subsidized prices still impedes an efficient privately run commodities exchange. Conasupo currently purchases around 40% of national maize production at prices that can be as much as 60% higher than the going rate on international markets.

According to Antonio Anguiano of the National Agriculture Council (C.N.A.) in Guadalajara, “If a bolsa is going to work, it's fundamental that the goods that are traded therein are subject to the law of supply and demand. Any other practice can distort its operation.

” Luis Carlos de la Noe, general director of ProMexico, an association formed in Sinaloa to spearhead the exchange's creation, agrees.

“Conasupo has to disappear,” he said. “The existence of an organization like the Conasupo inhibits participation of the private sector in price setting. The same thing happened in Argentina. The bolsa there has been around for 150 years, but every time the government has made a move to set prices, the bolsa has practically died.

"Miguel Yoldi, director general of information technology and market analysis at Agricultural Commercialization Support Services (Apoyos y Servicios a la Comercializacion Agropecuaria, ASERCA), a division of the Agriculture Secretariat that will likely be the most closely involved with regulating the exchange, does not feel Conasupo necessarily competes with the function of an exchange as long as the government stipulates that it buy through the exchange as well.

“If Conasupo buys through the bolsa, does that weaken or strengthen it?” Mr. Yoldi points out.

Jose Ignacio Portillo of Merchants de Mexico, a company that sets up contracts for Mexican producers on the Chicago (U.S. futures) exchange, concedes Conasupo is not the whole problem. “There are dozens of products that could be traded on the bolsa, it's not just about grains,” he says.

Stable Policies Needed

The real problem seems to be in setting up a long-term agricultural policy that producers and investors can believe in. Omar Edwin Perez of the Flour Industry Chamber doubts that the speculators needed to give a commodities bolsa liquidity will be interested in taking a risk on a Mexican futures market without some guarantee that the government will stay out of pricing policy.

“What's needed is a certainty regarding policy on prices and subsidies,” he says. “Right now you don't know if tomorrow the government will reinstate its practice of across-the-board subsidies.

”Mr. Portillo agrees that producers, buyers, investors, intermediaries and the government have to be consistent in their push to modernize the sector and ensure its future. The companies snapping up the nation's distribution centers, a key piece of the puzzle, have no incentive to jump-start the sector by modernizing its infrastructure if there is no guarantee the agriculture business will be profitable, says Mr. Portillo. There is also the question of educating producers about an exchange's uses, he says, as well as a big job convincing investors.

“We'll have to show them that there are other lucrative investment instruments in Mexico besides Cetes (Mexican peso-denominated debt certificates),” he says. “They can make money on coffee, sugar, wheat, etc.”

Despite these doubts, internationalization of the agricultural market has prompted a need for realistic commodities prices, and the push for a bolsa is gaining momentum. ProMexico organized a January congress with technical advisors from exchanges all over the world as well as representatives from organizations such as the World Bank, the Inter-American Development Bank and the Inter-American Institute for Cooperation in Agriculture. With the plan for the bolsa “practically finished,” Mr. De la Noe says those organizations have promised technical support, and the I.A.D.B. has offered financial assistance as well.

In addition, the National Banking and Securities Commission (Comision Nacional Bancario y de Valores, C.N.B.V.) authorized Mexico's futures market earlier this year, erasing doubts that Mexico was not ready to handle derivatives.

Mr. Yoldi confirms that at long last the plan is getting off the ground. “It got a push with the impulse of the new derivatives market (MexDer),” he says. “Our intention is that the regulatory framework and the definition of the participants be ready by the end of the year. I doubt very much there will be operations in January, but I don't doubt it will be ready.”

That may be overly optimistic considering that key regulatory issues, including who will do the regulating, have yet to be ironed out. Mr. Yoldi says ASERCA will be key, but the Agriculture, Commerce and Finance secretariats, and possibly the C.N.B.V., will also play a role. They will be responsible for setting up product quality standards and all operating restrictions.

Beyond the technical details is the still undecided location of the bolsa and the fundamental issue of its function. While producers feel they need a bolsa that will trade futures as well as straight commodities, Mr. Yoldi says he doubts that will be the immediate scenario, adding that it may not be necessary anyway given that futures trading could eventually be carried out in Mexico in real time and registered on the Chicago bolsa.

Creating a Market Culture

While that possibility exists, Mr. Portillo continues to push for a local futures exchange if for no other reason than to give the Mexican producer a delivery point. He says it will be hard enough to inculcate widespread effective use of the bolsa without users feeling that the price is being imposed by a distant market. “The producer must feel an affiliation to this exchange,” he says. “He must feel that it is his tool that he can use to solve his problems.”

Moreover, says Mr. Perez, “An exchange is not for selling existing products, it's about financial instruments. An exchange is a virtual market, not an existing commodities market.”

Mr. De la Noe of ProMexico foresees initial trading of commodities, followed by trading of term products that are planted and have a set delivery time and a third stage in which futures and options are introduced. He says that although technically, the bolsa could begin full-fledged operations from day one, it will probably be six months to a year from opening day until all the products are introduced simply because producers will have to become accustomed to the mechanism. “The culture surrounding price formation in Mexico is very delicate,” he says.

Mr. Anguiano of C.N.A. agrees. “The real challenge will be to create a culture of futures trading among the producers and create an understanding of the bolsa as a tool and not simply a method of speculation,” he says.

Mr. Portillo says education and publicity will likely be the most significant cost of opening the bolsa. “You can set up an office, put ‘commodities exchange' on the door and wear a tie to work,” he says. “But if you don't have clients, you don't have participants, you don't have a job.”

Though he cites many educational initiatives on the part of both the private sector and government, he predicts much of the work will fall to banks and financial intermediaries who will ultimately have to promote the exchange by advising producers seeking credit on how to lock in their prices in advance, totally reversing the “I'll-take-my-chances” mentality that exists today.

While the government is nominally in favor of the bolsa, the private sector will be the source of the funding. Mr. Perez points to lack of capable speculators as one of the reasons the project hasn't gotten off the ground since the government officially gave it the nod during the administration of Miguel de la Madrid. “I doubt that this type of speculator exists in Mexico,” he says.

When it comes to the bottom line, however, few are willing to hazard a guess as to what the technological and physical infrastructure will cost. Mr. De la Noe roughly estimates start up costs at between U.S.$500,000 and U.S.$1 million but adds, it's a project that could have “a lot of zeros to the right.” So far, he says, seven agroindustrial companies have expressed interest in buying seats on the exchange and two Colombian firms, eager to participate in what they feel is a Mexican market with a lot of potential, have also asked about buying seats.

Although nothing is certain as yet, Mr. Portillo, who has been involved in planning a commodities exchange for 10 years, acknowledges that “people are talking about the exchange more today than ever.” It is hoped, therefore, the momentum behind the project implies an imminent breath of fresh air for the beleaguered sector.

“It will have a huge impact,” says Mr. De la Noe. “The experience of other countries indicates that having information on prices leads to a structural change in the sector. It turns farmers into agricultural businessmen.”

Stephanie Noecker is editor of Bu$iness Mexico, the monthly magazine of the American Chamber/Mexico in Mexico City. This article was published in the July issue of Bu$iness Mexico and is reprinted with permission.